Question 1

If the liquidation value of a firm is negative,then:

Accepted Answer

A)  the firm's debt exceeds the market value of assets. 
B)  the firm's debt exceeds the book value of equity. 
C)  the book value of assets exceeds the firm's debt. 
D)  the market value of assets exceeds the firm's debt. 
A)  the firm's debt exceeds the market value of assets. 
B)  the firm's debt exceeds the book value of equity. 
C)  the book value of assets exceeds the firm's debt. 
D)  the market value of assets exceeds the firm's debt.

Question 2

An analyst who relies upon past cycles of stock pricing to make investment decisions is:

Accepted Answer

A)  performing fundamental analysis. 
B)  relying upon the strong-form of market efficiency. 
C)  assuming that the market is not weak-form efficient. 
D)  relying upon the random walk of stock prices. 
A)  performing fundamental analysis. 
B)  relying upon the strong-form of market efficiency. 
C)  assuming that the market is not weak-form efficient. 
D)  relying upon the random walk of stock prices.

Question 3

According to the constant dividend growth model,a stock price should equal the:

Accepted Answer

A)  sum of all future dividends. 
B)  sum of dividends to be received within the investor's holding period. 
C)  dividend yield plus the constant growth rate. 
D)  sum of all discounted future dividends. 
A)  sum of all future dividends. 
B)  sum of dividends to be received within the investor's holding period. 
C)  dividend yield plus the constant growth rate. 
D)  sum of all discounted future dividends.

Question 4

What is the expected constant growth rate of dividends for a stock currently priced at $50,that just paid a dividend of $4,and has a required return of 18 percent?

Accepted Answer

A)  3.41 percent 
B)  5.50 percent 
C)  9.26 percent 
D)  12.5 percent 
A)  3.41 percent 
B)  5.50 percent 
C)  9.26 percent 
D)  12.5 percent

Question 5

Reinvesting earnings into a firm will not increase the stock price unless:

Accepted Answer

A)  the new paradigm of stock pricing is maintained. 
B)  true depreciation is less than reported depreciation. 
C)  the firm's dividends are growing also. 
D)  the ROE of new investments exceeds the firm's required return. 
A)  the new paradigm of stock pricing is maintained. 
B)  true depreciation is less than reported depreciation. 
C)  the firm's dividends are growing also. 
D)  the ROE of new investments exceeds the firm's required return.

Question 6

What is the value of the expected dividend per share for a stock that has a required return of 16 percent,a price of $45,and a constant growth rate of 10 percent?

Accepted Answer

A)  $2.70 
B)  $3.60 
C)  $4.50 
D)  $7.20 
A)  $2.70 
B)  $3.60 
C)  $4.50 
D)  $7.20

Question 7

Which of the following is a characteristic of a dealer market,rather than auction market,for common stock?

Accepted Answer

A)  dealer markets are more likely to be centralized 
B)  dealer markets operate as primary, not secondary, markets 
C)  dealers may not offer all the same price for the same security 
D)  dealer markets specialize in trading income stocks 
A)  dealer markets are more likely to be centralized 
B)  dealer markets operate as primary, not secondary, markets 
C)  dealers may not offer all the same price for the same security 
D)  dealer markets specialize in trading income stocks

Question 8

The value of common stock will likely decrease if:

Accepted Answer

A)  the investment horizon decreases. 
B)  the growth rate of dividends increases. 
C)  the discount rate increases. 
D)  dividends are discounted back to the present. 
A)  the investment horizon decreases. 
B)  the growth rate of dividends increases. 
C)  the discount rate increases. 
D)  dividends are discounted back to the present.

Question 9

Cash dividends are offered to shareholders in lieu of increasing the stock's price.

Accepted Answer

A) True 
 B)False

Question 10

What should be the stock value one year from today for a stock that currently sells for $35,has a required return of 15 percent,an expected dividend of $2.80,and a constant dividend growth rate of 7 percent?

Accepted Answer

A)  $37.45 
B)  $37.80 
C)  $40.25 
D)  $43.05 
A)  $37.45 
B)  $37.80 
C)  $40.25 
D)  $43.05

Question 11

The expected return on a common stock is composed of:

Accepted Answer

A)  dividend yield. 
B)  capital appreciation. 
C)  both dividend yield and capital appreciation. 
D)  capital appreciation minus the dividend yield. 
A)  dividend yield. 
B)  capital appreciation. 
C)  both dividend yield and capital appreciation. 
D)  capital appreciation minus the dividend yield.

Question 12

If next year's dividend is forecast to be $5.00,the constant growth rate is 4 percent,and the discount rate is 16 percent,then the current stock price should be:

Accepted Answer

A)  $31.25 
B)  $40.00 
C)  $41.67 
D)  $43.33 
A)  $31.25 
B)  $40.00 
C)  $41.67 
D)  $43.33

Question 13

The g in the constant-growth dividend model refers to:

Accepted Answer

A)  the annual growth rate for dividends. 
B)  the annual growth rate for stock price. 
C)  The annual growth rate for stock price and for dividends. 
D)  None of the choices are correct. 
A)  the annual growth rate for dividends. 
B)  the annual growth rate for stock price. 
C)  The annual growth rate for stock price and for dividends. 
D)  None of the choices are correct.

Question 14

Which of the following is least assured for firms that plowback a portion of earnings into the firm?

Accepted Answer

A)  growth in earnings per share. 
B)  growth in dividends per share. 
C)  growth in book value of equity. 
D)  growth in stock price. 
A)  growth in earnings per share. 
B)  growth in dividends per share. 
C)  growth in book value of equity. 
D)  growth in stock price.

Question 15

Dividing a stock's earnings per share by the expected rate of return will value the share correctly if no new shares are issued and the dividend yield:

Accepted Answer

A)  exceeds the required return. 
B)  equals the required return. 
C)  is zero. 
D)  is constant. 
A)  exceeds the required return. 
B)  equals the required return. 
C)  is zero. 
D)  is constant.

Question 16

The dividend discount model indicate that the value of a stock is the present value of the dividends it will pay over the investor's horizon plus the present value of the expected stock price at the end of that horizon.

Accepted Answer

A) True 
 B)False

Question 17

What price would you expect to pay for a stock with 13 percent required rate of return,4 percent rate of dividend growth,and an annual dividend of $2.50 which will be paid tomorrow?

Accepted Answer

A)  $27.78 
B)  $30.28 
C)  $31.10 
D)  $31.39 
A)  $27.78 
B)  $30.28 
C)  $31.10 
D)  $31.39

Question 18

If the liquidation value of a corporation exceeds the market value of the equity,then the:

Accepted Answer

A)  firm has no value as a going concern. 
B)  firm's stock will sell for book value. 
C)  firm is not taking advantage of available growth opportunities. 
D)  dividend payout ratio has been too high. 
A)  firm has no value as a going concern. 
B)  firm's stock will sell for book value. 
C)  firm is not taking advantage of available growth opportunities. 
D)  dividend payout ratio has been too high.

Question 19

How can we claim that the Dividend Discount Model works when many actual investors may be seeking capital gains and planning to hold their shares for just a few years?

Accepted Answer

The value of a share of common stock equ

Question 20

Which of the following is more likely to be responsible for a firm having low PVGO?

Accepted Answer

A)  ROE exceeds required return. 
B)  Plowback is very high. 
C)  Payout is very high. 
D)  Book value of equity is low. 
A)  ROE exceeds required return. 
B)  Plowback is very high. 
C)  Payout is very high. 
D)  Book value of equity is low.

Exam 7: Valuing Stocks

If the liquidation value of a firm is negative,then:

An analyst who relies upon past cycles of stock pricing to make investment decisions is:

According to the constant dividend growth model,a stock price should equal the:

What is the expected constant growth rate of dividends for a stock currently priced at $50,that just paid a dividend of $4,and has a required return of 18 percent?

Reinvesting earnings into a firm will not increase the stock price unless:

What is the value of the expected dividend per share for a stock that has a required return of 16 percent,a price of $45,and a constant growth rate of 10 percent?

Which of the following is a characteristic of a dealer market,rather than auction market,for common stock?

The value of common stock will likely decrease if:

Cash dividends are offered to shareholders in lieu of increasing the stock's price.

What should be the stock value one year from today for a stock that currently sells for $35,has a required return of 15 percent,an expected dividend of $2.80,and a constant dividend growth rate of 7 percent?

The expected return on a common stock is composed of:

If next year's dividend is forecast to be $5.00,the constant growth rate is 4 percent,and the discount rate is 16 percent,then the current stock price should be:

The g in the constant-growth dividend model refers to:

Which of the following is least assured for firms that plowback a portion of earnings into the firm?

Dividing a stock's earnings per share by the expected rate of return will value the share correctly if no new shares are issued and the dividend yield:

The dividend discount model indicate that the value of a stock is the present value of the dividends it will pay over the investor's horizon plus the present value of the expected stock price at the end of that horizon.

What price would you expect to pay for a stock with 13 percent required rate of return,4 percent rate of dividend growth,and an annual dividend of $2.50 which will be paid tomorrow?

If the liquidation value of a corporation exceeds the market value of the equity,then the:

How can we claim that the Dividend Discount Model works when many actual investors may be seeking capital gains and planning to hold their shares for just a few years?

Which of the following is more likely to be responsible for a firm having low PVGO?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters